A long-run risks explanation of predictability puzzles in bond and currency markets
Publication
, Journal Article
Bansal, R; Shaliastovich, I
Published in: Review of Financial Studies
January 1, 2013
We show that bond risk premia rise with uncertainty about expected inflation and fall with uncertainty about expected growth; the magnitude of return predictability using these uncertainty measures is similar to that by multiple yields. Motivated by this evidence, we develop and estimate a long-run risks model with timevarying volatilities of expected growth and inflation. The model simultaneously accounts for bond return predictability and violations of uncovered interest parity in currency markets. We find that preference for early resolution of uncertainty, time-varying volatilities, and non-neutral effects of inflation on growth are important to account for these aspects of asset markets. © 2012 The Author.
Duke Scholars
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Published In
Review of Financial Studies
DOI
EISSN
1465-7368
ISSN
0893-9454
Publication Date
January 1, 2013
Volume
26
Issue
1
Start / End Page
1 / 33
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
- 1402 Applied Economics
- 1401 Economic Theory
Citation
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Bansal, R., & Shaliastovich, I. (2013). A long-run risks explanation of predictability puzzles in bond and currency markets. Review of Financial Studies, 26(1), 1–33. https://doi.org/10.1093/rfs/hhs108
Bansal, R., and I. Shaliastovich. “A long-run risks explanation of predictability puzzles in bond and currency markets.” Review of Financial Studies 26, no. 1 (January 1, 2013): 1–33. https://doi.org/10.1093/rfs/hhs108.
Bansal R, Shaliastovich I. A long-run risks explanation of predictability puzzles in bond and currency markets. Review of Financial Studies. 2013 Jan 1;26(1):1–33.
Bansal, R., and I. Shaliastovich. “A long-run risks explanation of predictability puzzles in bond and currency markets.” Review of Financial Studies, vol. 26, no. 1, Jan. 2013, pp. 1–33. Scopus, doi:10.1093/rfs/hhs108.
Bansal R, Shaliastovich I. A long-run risks explanation of predictability puzzles in bond and currency markets. Review of Financial Studies. 2013 Jan 1;26(1):1–33.
Published In
Review of Financial Studies
DOI
EISSN
1465-7368
ISSN
0893-9454
Publication Date
January 1, 2013
Volume
26
Issue
1
Start / End Page
1 / 33
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
- 1402 Applied Economics
- 1401 Economic Theory